Today’s Blog – Thursday 28th April 2016

The oil industry is renowned as being one in which small companies come up with new plays, ideas, discoveries, etc – and then in the case of success are consumed by bigger fish – who in turn are consumed by larger sharks – and so on. Although hardly flawless, it is a system that has generally worked well for ~150 years and is best represented in laissez faire countries like the US and Australia.

In our country, one of the the lowest forms of such E&P corporate life is generally the small exploration company that seeks capital from public markets through IPOs or back door listings (although the sector has not exactly been popular of late – wait until the “medium” term oil price rise comes around).

However, recent flagged changes to the listing rules from the ASX are about to make IPOs and back-door listings much tougher. These rules – which are still not certain in form or timing – will therefore make it more difficult for small companies to access public capital.

It seems that one of the drivers of the changes is to make it harder for enterprises from e.g. China (and even the former Soviet Union countries) to list here and use Australia’s clean jurisdiction to effectively facilitate the export and/or laundering of money.

However, the collateral damage will be to our industry’s bottom feeders (including the ones I am involved with – rats!) – which disrupts the whole feeding chain model outlined above.

Commodity prices

Small equity markets might be tough for oil and gas explorers – but the under-pinning commodity markets are in a good mood at present (and long may that continue – this blog does not buy much petrol). Crude markets closed up again over-night, with Brent up ~2% to US$47.21 and WTI closing up even stronger (3%) to US$45.33.

The weekly EIA report was (for once) pretty much as predicted a day or so earlier, with crude inventories increasing by 2 mmbbls, whilst product inventories fell by 3.3. mmbbls (gasoline by 1.6 mmbbls and distillate by 1.7 mmbbls).

The key market driver of the day was news from the US Fed over the future path of interest rises (no soup for you! yield seekers) – with the usual correlation being made between a weaker US dollar and a stronger oil price.

Henry Hub rose ~6% to US$2.15.

LNG and international gas

An intriguing story on Russian gas exports to China – a recent statement from a senior executive in Gazprom about CNPC’s (PetroChina’s) negotiating tactics over price.

Apparently the Chinese had made the outrageous statement that LNG was cheap and therefore Russian pipeline gas should recognise that as a benchmark from an alternative supplier.

The under-construction Power of Siberia pipeline from Russia to China is under-pinned by what is perhaps the largest gas contract in history. When this was signed 2 years ago, some Westerners speculated that the gas price for the deal was not finally locked in – and that Putin had been forced to sign earlier than he would have liked commercially due to political pressures from e.g. Western reactions over Ukraine.

It could therefore well be the case that Power of Siberia is not certain in in terms of price, volumes, timing – or even existentially. If that is the case – it is big enough to have knock on effects for global LNG markets.

Company news – Statoil

It is commonplace that the international oil and gas industry has dramatically reduced its “business as usual” (BAU) capital expenditure over the last ~18 months. In rough terms, BAU expenditure of US$1 trillion annually has been cut by ~60% to ~US$400B.

A recently announced large investment by Statiol – of ~US$700M is material in this context – and is especially interesting in terms of the destination for the capex. This is a 50% share in a 385 MW offshore (Baltic) wind-farm.

Given its Norwegian domicile, one would expect Statoil to be rather greener than say a Midland Texas independent, but this is a lot of money, especially given the times, and is perhaps a signal of what we quoted from an ex-CEO of Shell recently – that the Super-Majors should be thinking as energy – not just petroleum – companies.

Company news – Beach Energy (BPT)

BPT issued its quarterly report today (one day after its recent corporate update – busy bees down in BPT’s investor relations department). Buried deep in the report was the news that it was in the process of replacing its CFO. Eagle eyed investors may have considered this possible when BPT announced she had resigned as Company Secretary back in March.

General ASX corporate best practice would be to be a bit more sensitive to market concerns about changes of personnel in this critical risk-focused role. Mere bean counters are maybe not seen as that important by technical types – but investors in un-hedged companies in recent times might have a different view.

Quote of the day

When dealing with Chinese gas buyers, Gazprom seems to have lost its copy of Sun Zhu’s The Art of War – but should note the following:

“To begin by bluster, but afterwards to take flight at the enemy’s numbers, shows a supreme lack of intelligence.”